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  • Saumya Singh, Aprajita

IDA, Corporate Governance, and Judicial Role in Preventing Workers’ Victimization during Pending Disputes

[Following is the post authored by Saumya and Aprajita, students at National Law School of India University, Bangalore, who secured the first position at IDIA Odisha Article Writing Competition 2023.]

Introduction: Contextualizing the SC’s Direction for Mediation in John D’ Souza v. KSRTC

A crucial aspect of industrial relations is the (statutory) scope and limitations of the employers’ powers to terminate the services of workers.  In the Indian context, this issue has been especially contentious where an employer seeks to discharge or dismiss a worker from service, while an industrial dispute between them is sub judice, putatively on unrelated grounds. There persists a danger in such situations that the employer may use the termination of service as a tool to victimize the worker, such as to wreak vengeance on them for asserting their rights and/or interests, or to covertly punish them for the alleged act of misconduct. To safeguard the worker’s right against victimization in such situations, Section 33(2)(b) of the Industrial Disputes Act 1947 (IDA) mandates the employer to file an application before the adjudicatory authority which is seized of the pending dispute (earlier authority), to seek the authority’s approval for the termination of the worker’s service (approval requirement).

By positing the approval requirement, the IDA vests the earlier authority with the opportunity and institutional responsibility to ensure that the employer’s decision was procedurally sound, and did not bear a covert nexus with the pending industrial dispute. However, the Supreme Court of India (SC) significantly departed from this expectation in John D’ Souza v Karnataka State Road Transport Corporation (present case). In this case, while deciding on a special leave petition relating to the KSRTC’s application for allowing Mr D’ Souza’s dismissal, the SC directed the parties to mediate and settle the dispute out-of-court, before an external forum. This was despite how Mr D’ Souza was expressly opposed to undertaking such mediation.

The SC’s judgement raises two crucial issues regarding the appropriate remedies to safeguard the workers’ right against victimization, which the IDA seeks to protect through the approval requirement and the earlier authorities’ oversight. These issues are first, whether the earlier authorities are statutorily empowered in such proceedings to direct the parties to mediation before extra-statutory forums, without the respective worker’s consent; and second, whether such mediation would be an effective substitute for the earlier authority’s institutional powers and oversight in ensuring that the dismissed workers have not been covertly victimized. We analyze these issues in this post through the lens of the principles of corporate governance, after briefly discussing the institutional history of the present case, and the pertinent aspects of the SC’s reference to mediation.

The Institutional History of the Case, and the SC’s Direction to Mediate

The chain of judgements in the present case arose out of the KSRTC’s application before the First Additional Labour Court, Bangalore (Labour Court) for its approval to dismiss Mr D’ Souza from service (KSRTC’s application for dismissal). The KSRTC’s disciplinary authority had ordered for Mr D’ Souza’s dismissal on the grounds that he had absented himself from work for a prolonged period without sanctioned leave. Mr D’ Souza had been dismissed at a time when certain other industrial disputes involving him and the KSRTC were pending before the Labour Court. Therefore, the KSRTC sought the Labour Court’s approval to enforce his dismissal.

The KSRTC’s application for dismissal had a convoluted trajectory before it reached the SC. It underwent two full rounds of adjudication before the Labour Court, single-judge benches of the Karnataka High Court (Karnataka HC), and division benches of the Karnataka HC.[1] In both rounds, the Labour Court held in favour of Mr D’ Souza and dismissed the KSRTC’s application for dismissal. The Labour Court’s awards were upheld by the respective single-judge benches of the Karnataka HC. However, in both rounds of adjudication, the respective division benches held that the Labour Court had transgressed the permissible scope of review for proceedings relating to the approval requirement. Therefore, the division benches remanded the case to the Labour Court for re-adjudication, based on the specified scope and parameters of review.

Mr D’ Souza preferred an appeal by special leave before the SC against the Karnataka HC’s second judgment of remand. At one level, the SC specified the parameters of review that an earlier authority must adhere to while deciding on an employer’s Section 33(2)(b) application. In this context, the SC remanded the present case to the Labour Court for re-adjudication. Simultaneously, at another level, the SC directed the parties to first undertake mediation on the present dispute surrounding Mr D’ Souza’s dismissal. The SC noted that in one of the proceedings before the Karnataka HC, the bench had directed the parties to undertake mediation. However, the parties had failed to reach common ground regarding the quantum of back wages to be paid to Mr D’ Souza. The SC further noted, in a rather disparaging tone, that Mr D’ Souza was unwilling to undertake mediation again. Nevertheless, the court ordered the parties to proceed for mediation before the Karnataka Mediation Centre (KMC), and attempt to reach a settlement by adopting a “give and take approach” (SC’s direction to mediate).

The SC’s direction to mediate was coercive for Mr D’ Souza in two respects. At one level, the court negated his express choice not to undertake mediation on the present dispute regarding his dismissal. At another level, the SC practically foreclosed the gates of later withdrawing from the mediation proceedings for Mr D’ Souza, without severe implications for his legal position in the present case. In usual circumstances, Mr D’ Souza could have withdrawn from the mediation before the KMC at any stage. He enjoyed an unconditional right to this effect under the then-applicable rules and procedure for mediation before the KMC and would also have possessed this right under the Mediation Act 2023 regime, which presently governs mediations before the institution. However, in the present case, the SC sternly disapproved of how Mr D’ Souza had insisted on a certain level of back wages in the previous round of mediation, which had contributed to the parties’ not reaching a settlement. Moreover, the SC pointed to how Mr D’ Souza was possibly guilty of “acts of indiscipline, insubordination” and absence without sanctioned leave, and insisted that settling the dispute through mediation would be advisable for him in the present case. Viewed from Mr D’ Souza’s perspective, the SC’s remarks foreshadowed that if he did not settle the dispute through the SC-directed mediation, he could possibly face judicial disapproval in later adjudicatory proceedings on the KSRTC’s application for dismissal.

Taking Remedies Seriously: The Statutorily Permissible and Appropriate Forum(s) for Proceedings on Employers’ Section 33(2)(b) Applications

A significant ground underlying the SC’s direction to mediate in the present case was the court’s belief that mediation before the KMC was one of the statutorily prescribed remedies for resolving industrial disputes under the IDA. However, the SC did not mention the specific provisions which, in its opinion, provided for such mediation. Indeed, the IDA’s provisions do not provide a single answer regarding whether the SC’s direction to mediate was statutorily permissible.

In terms of the statutory text, Section 33(5) of the IDA empowers an earlier authority which is seized of an employer’s Section 33(2)(b) application to pass “such order in relation thereto as it deems fit”. This provision ex facie appears sufficiently broad to provide a statutory justification for the SC’s direction to mediate. Contrarily, the IDA requires an employer to file a Section 33(2)(b) application before the earlier authority, for seeking the earlier authority’s approval for the respective worker’s dismissal from service. Moreover, Section 33A of the IDA empowers the respective workers to directly approach the earlier authority if their employer violates the approval requirement. This is an exceptional departure from the IDA’s general scheme, wherein the appropriate government has the discretion to refer industrial disputes to adjudication. Both these aspects of the statutory scheme suggest that the IDA vests the earlier authority, and no other forum, with the institutional authority and responsibility to decide whether the respective worker’s dismissal was a covert attempt at victimisation. This, in turn, implies that the earlier authority cannot rely on Section 33(5) to cede this authority and responsibility, including by directing the parties to settle the dispute inter se through mediation.

Therefore, the IDA’s provisions are indeterminate regarding whether the earlier authority is empowered to refer proceedings relating to the approval requirement for mediation, whether with or without the respective worker’s consent. In this context, the SC’s second justification for its direction to mediate acquires immense significance. The SC expressed its firm belief in the merits of mediation and extra-judicial settlements, and its ardent faith that “better sense will prevail upon both the parties” to the effect that “they will make an earnest and renewed effort…for amicable settlement of the dispute”. Therefore, the SC implicitly considered mediation to be a more effective remedy for fulfilling the approval requirement’s purpose, even if the respective workers had to be coerced into the process. However, we argue that viewed from the lens of the principles of corporate governance, the SC’s assessment on this aspect was misconceived.

From the perspective of corporate governance, mediation offers a means to swiftly and efficiently address conflicts among various stakeholders within a company. This process helps to resolve inter- and intra-stakeholder disputes without the involved parties having to incur the costs, vexation, and delay that are usually associated with the adjudicatory process. For this reason, a well-functioning mediation process is often considered instrumental in maintaining the integrity of the corporate governance framework. Concomitantly, the principles of corporate governance recognise that if the mediation process is to serve as a catalyst for fairness, it must be conducted only after certain preconditions are satisfied. One such precondition in the context of employer-worker disputes is that the respective workers participate in the process based on their voluntary and informed consent. In this context, ‘voluntary’ consent would require that the parties consent to participate in the mediation proceedings, to remain in mediated negotiations, and to the outcome reached through the mediation process. Further, ‘informed’ consent presupposes that the respective workers genuinely understand the existing factual situation and their legal rights and liabilities with respect to the present case and the mediation process.

Where individual workers are coerced into mediation with their employers without the former’s voluntary and informed consent, the latter may be able to take advantage of their superior bargaining power to reach ‘settlements’ that heavily prejudice the workers’ rights and interests. This risk would generally be present in any coerced employer-worker negotiations in the Indian context, given that the workers are usually in a much more economically precarious position than their employers, and can be replaced by the latter with relative ease. However, the possibility of structural coercion by the employer becomes especially prominent in situations where an employer has filed a Section 33(2)(b) application before the earlier authority, after having terminated the worker’s service on grounds putatively unrelated to the pending dispute. In such cases, there is a statutorily recognised possibility that the employer may have targeted and victimized the respective worker; if the earlier authority refers the proceedings to mediation, the employer may carry this hostility to the mediation process. Moreover, with their employment on the brink of termination (or already terminated, as in Mr D’ Souza’s case after his superannuation), the respective worker may be driven to make offers and concessions during mediation that are heavily prejudicial to their rights and interests, merely to ensure that they receive some minimal entitlements to ensure their subsistence. Leaving the workers vulnerable to such structural coercion by their employers is inconsistent with the basic tenets of corporate governance. This is because the framework recognises the workforce as an essential stakeholder within the organisation, given its active contribution to the functioning and expansion thereof.

The only aspect of the mediation process in India that could provide some measure of counter-balance to the employer’s structural coercion in Section 33(2)(b) situations is the mediator’s duty to ensure that both sides understand their respective rights and obligations and make informed decisions. However, even if implemented by the mediators in good faith, this duty does not address the inferior bargaining power of the respective worker vis-à-vis their employer. For the respective worker to be safeguarded from the employer’s structural coercion, they must be able to exercise voluntary (and not just informed) consent in proceeding with or withdrawing from the mediation proceedings, at any stage. However, this aspect of voluntary consent was doubly prejudiced in the present case when the SC not only negated Mr D’ Souza’s objections to undertaking mediation with the KSRTC, but also placed him under a certain degree of pressure to settle the case through this process.

Therefore, the SC’s direction to mediate in the present case was normatively untenable from the perspective of the principles of corporate governance. In referring the Section 33(2)(b) proceedings to mediation without Mr D’ Souza’s voluntary and informed consent, the SC catalyzed the possibility of his being structurally coerced into a settlement that was significantly prejudicial to his rights and interests. Respecting the workers’ right against victimization demands that the respective judicial authorities take their statutorily envisaged role and responsibility seriously while deciding on employers’ Section 33(2)(b) applications. This would entail that the authorities, first, adjudicate on employers’ Section 33(2)(b) applications themselves as a rule and, second, refer such proceedings to mediation under Section 33(5) only if the respective worker renders their voluntary and informed consent thereto. Even in the second eventuality, the earlier authorities must maintain close scrutiny over the mediation proceedings to ensure that the respective worker can continue to exercise their voluntary and informed consent, without harassment or structural coercion from the employer.

[1] After the SC delivered the judgement analyzed in the present post, the KSRTC’s application for dismissal underwent another full round of litigation before the Labour Court, single-judge and division benches of the Karnataka HC, and the SC. However, the respective judgements in this round of litigation are not pertinent for the purposes of the present post.

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